HOUSTON (Dow Jones)--The skyrocketing cost of rare-earth metals coming out of China is pushing up the cost of gasoline production in the U.S., the latest sign of the wide-reaching impact of Beijing's decision to restrict exports of the minerals.

Prices for some of the chemicals refiners use to process gasoline have risen exponentially after China, which controls about 95% of the world's rare-earth supply, said it would slash exports of the metals by 35% in 2011. The increase could raise gasoline production costs by about a penny a gallon and potentially lead some refiners to cut back on fuel production, and is expected to become a topic in many refiners' earnings conference calls in the first quarter of 2011.

Rare earths, elements that go into high-tech batteries, television sets and military technology, are also used in the catalyst component of refiners' gasoline-making fluid catalytic cracking units, or FCCUs. Although rare earths account for only up to 4% of catalysts used in these units, their recent price increase has added as much as an extra 25% to catalyst costs, according to the National Petrochemical and Refiners Association, a group representing the sector.

The increase comes just as U.S. refiners were getting back on their feet financially after years of low demand and tight profit margins. Refiners such as Valero Energy Corp. (VLO) and Sunoco Inc. (SUN) sold some of their plants in 2010 to rid themselves of poor-performing assets.

"Any kind of increase, especially in today's markets and conditions, is significant," said NPRA President Charlie Drevna.

There are about 100 FCCUs amid the country's 150 refineries, ranging in capacity from more than 100,000 barrels of oil a day to less than 10,000. The typical 50,000 barrel-a-day FCCU uses an average of seven tons a day of catalyst to help remove impurities from what will become gasoline and diesel, with the increase in rare-earth prices costing its owner an extra $147,000 a month.

That would add about a penny to the production cost of each gallon of gasoline made--not enough to make the consumer notice, but enough to make some refiners think about scaling back production, analysts say. Adding to the cost is the U.S. drive for cleaner-burning gasoline and diesel, which requires refiners to use more catalysts.

Refiners acknowledged that catalyst costs were growing but declined to elaborate. Valero, which is the largest U.S. independent refiner and operates 12 FCCUs ranging in capacity from 24,000 to 100,000 barrels of oil a day, will probably address the issue during its fourth-quarter earnings conference call, company spokesman Bill Day said.

"Catalyst costs are something that Valero is monitoring closely," Day said.

Tesoro Corp. (TSO) said it has included the rising cost of rare earths into its 2011 budget but declined to say how much extra money it was paying for catalysts. The company, which runs five FCCUs, was seeking ways to mitigate the damage done to its bottom line, Tesoro spokesman Mike Marcy said.

"There may be ways to adjust catalyst blends to reduce the impact of cost increases," Marcy said.

How long rare-earth prices will continue to climb is in question as companies outside China hustle to make more of the metals available. U.S.-based Molycorp Inc. (MCP) said it plans to spend $531 million to mine and process rare earths from a Mojave desert mine that used to produce the material until it was shut in 2002. Lynas Corp. Ltd. (LYC), a rare-earth supplier based in Australia, said it plans to start mining rare earths from Mount Weld in western Australia for expected production in the third quarter of 2011.

Until those projects come online, rare-earth prices will likely continue to increase, however. Chemical companies, which supply catalysts to refiners, have started indexing the cost of their product to rare-earth price movements, said Ed Morrison, president of consulting firm Global Catalyst & Process Technology Management PLLC.